BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increase to stockholders’ equity.
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decrease to stockholders’ equity.
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loss in the income statement.
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loss in the retained earnings statement.
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Detailed explanation-1: -Answer and Explanation: The correct option is (b) decrease to stockholders equity. The debit balance in unrealized gain or loss is reported as a decrease in stockholder’s equity.
Detailed explanation-2: -Unrealized income or losses are recorded in an account called accumulated other comprehensive income, which is found in the owner’s equity section of the balance sheet. These represent gains and losses from changes in the value of assets or liabilities that have not yet been settled and recognized.
Detailed explanation-3: -Recording Unrealized Gains Securities that are held for trading are recorded on the balance sheet at their fair value, and the unrealized gains and losses are recorded on the income statement.
Detailed explanation-4: -The unrealized gains and losses related to changes in the fair value of available-for-sale debt securities are recorded in an unrealized holding gain or loss account. This account is reported as other comprehensive income and as a separate component of stockholders’ equity until realized.
Detailed explanation-5: -Unrealized gains and losses (aka “paper” gains/losses) are the amount you are either up or down on the securities you’ve purchased but not yet sold. Generally, unrealized gains/losses do not affect you until you actually sell the security and thus “realize” the gain/loss.